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NetApp Filing Prompts Concern

Any celebrations at Network Appliance headquarters over rival EMC's admission of a poor quarter have ended abruptly.

When EMC revealed sales for last quarter did not measure up to its previous forecast three days ago, the price of its shares tumbled 6.89 percent. (See EMC Slips on Symmetrix Transition.) Yet NetApp's shares took a steeper dive yesterday -- closing at $28.60, falling $2.13 (6.93%) from its opening price.

What's the problem? NetApp released its 10K disclosure for last quarter, and it included a couple of possible red flags. One was a cryptic reference to a comment letter from the SEC dated April 28 relating to a routine review of company filings. That caused concern because of the recent flurry of investigations into companies' stock option grants.

Another potential red flag was that inventory levels for finished goods were up 36.5 percent during the last quarter, suggesting NetApp might have expected sales to slow this quarter.

Wall Street analyst Shebly Seyrafi of Kaufman Bros. said he was concerned about the company "for a variety of reasons" in a note to clients. He pointed to product inventories and potentially disappointing sales in Europe and to the U.S. federal government.

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